What is your opinion of Linamar, which has had a good ride. How much further can it go?

Norman

Hey Norman,

Thanks for the assignment. I last reviewed the case for Linamar Corp. on Sept. 10, 2009, on a request that you made after you had attended their AGM. The stock was trading for $13.05 and you wanted to know if it was a good long-term investment.

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It was advised that over a longer investment horizon LNR was a winner. The only question was how it would perform in the short term. The MACD was signalling that the advance would continue,which is exactly what happened. The stock moved higher to $21.40 by May 14, 2010. Another run at the charts will identified if LNR has more to give.

The three-year chart indicates that the stock spent most of 2012 trading sideways in a range with support at $20.00 and resistance at $22.00. Active traders would have loved the action as the shares oscillated in the range five times over 12 months. The move through resistance at $22.00 was signalled by the aggressive move higher by the MACD. Typically when a stock breaks through resistance that it has tested multiple times the gains can be explosive.

On a fundamental basis the company beat the street in each of the last four quarters. In addition the founder of the company, Frank Hasenfratz, released his thoughts in book form. Driven to Success: How Frank Hasenfratz drove Linamar from Guelph to Global got great ink in an article written for the Globe & Mail by Boyd Erman on Dec. 18, 2012 (subscription required). It never hurts to beat the street while hitting the stores with a new book and topping it all off with great ink!

The six-month chart suggests that the shares have become overbought and it should come as no surprise that some investors have decided to book a profit. The next flex point for the stock is scheduled for March when LNR reports fourth quarter 2012. I would watch $25.50 which is the next level of support for the stock. If it holds you could get a bounce ahead of the report. Currently there is profit taking as investors who caught the ride Dec. 18, 2012 when the shares traded for $21.72 throw to cash. A 23.15 per cent return in little over 30 days helps to get the new year off on the right foot!

I always advise booking profits when available – trees don’t grow to the sky!

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